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Postponement Of the Goods and Services Tax(GST) Will Help To Postpone Inflation From Rising Higher In 2007 But Will Not Affect Higher Inflation In 2006 Unless A Price Freeze Is Imposed On 11 Essential Goods And Services.

Media Statement
by Lim Guan Eng

(Petaling Jaya, Wednesday): DAP welcomes the announcement by the Finance Ministry on 22.2.3006 that the implementation of the Goods and Services Tax (GST) from Jan 1, 2007 has been postponed to a new date that will be announced later. DAP had earlier opposed the GST announced by Prime Minister Datuk Seri Abdullah Badawi in last year’s Budget and sought a postponement until the adverse impact on small-time businesses and ordinary Malaysians is fully studied and known.

As a broad based consumption tax based on the value-added concept, GST is more efficient but may not fulfill the social equity criteria as it would affect badly the lower income groups unless exemptions and financial assistance are provided to lower their burden. However too extensive a list of exemptions and assistance may be counter-productive as it would result in making the concept of consumption tax irrelevant.


Postponement of the GST will help to postpone inflation from rising higher in 2007 but will not affect higher inflation in 2006 unless a price freeze is imposed on 11 essential goods and services. Last week was the first “ang pow” of price increases when school bus fares rose by 20%, expected to take effect before April 2006. The other 11 more “ang pows” of price increases as follows:-

1.      fuel and gas;

2.      quit rent as announced by some states such as Melaka, Negeri Sembilan and Perak;

3.      assessment rates;

4.      electricity tariff as proposed by Tenaga Nasional Bhd;

5.      water rates after the privatization/corporatisation of water supply services is approved by Parliament in March this year;

6.      insurance premiums of health card/medical care;

7.      tobacco;

8.      alcohol and beer;

9.      university-related fees following the reduction of government assistance of 90% of government assistance to 70%;

10. land registration fees; and

11. bank’s interest rates.


Bank Negara’s Increase In OPR By 0.25% To 3.25% Is The First In A Long Series Of Price Increases.

Unfortunately, DAP’s prediction was proven correct when Bank Negara announced on 22.2.2006 an increase in overnight policy rate(OPR) by 0.25% from 3% to 3.25%. Such an increase in OPR will only increase the cost and burden of those having business, house and car loans. Interest rates and the other items above are expected to rise further this year unless a price freeze is imposed. Further there is no increase in salaries to offset such price increases.


Our economy’s growth rate has performed worse in 2005 at 5%, as compared to 7.1% in 2004 whereas inflation increased to 3% in 2005 to 1.4% in 2004. Further, many businessmen have complained about the drop in business last year despite registering a 5% growth rate and paying higher prices above the official 3% inflation rate.


Nothing has been done by the government to ensure that the people enjoy equally the benefits of the country’s economic growth. The failure to ensure equitable distribution of economic benefits is due to inefficiencies in the delivery system and extensive corruption such as no open tenders and cronyism where government contracts are awarded based, not on technical know-how but political know-who.


The latest RM 756.7 million Metramac Corporation scandal where the Court of Appeal openly judged the then Minister of Finance Tun Daim Zainuddin of abusing his power to favour certain businessmen and companies, directors openly stealing and cheating their companies RM 32.5 million and misusing public funds of hundreds of millions of rinngit for the private benefit of few individuals. At the local level, we have appointed councilors refusing to uphold accountability and transparency when they go for expensive overseas junkets to “makan angin” at public expense. Is this how our assessment rates are utilised instead of improving services, roads and drainage?


To curb inflation, Prime Minister Datuk Seri Abdullah Ahmad Badawi had promised on Sept. 7 2005 that it would halt further fuel price rises for 2005 and delay increases in highway toll rates until after 2006. However even this effort to check corruption may be doomed to failure if he fails to renew the promise that there will be no fuel price increase this year.


DAP urges the government to take the initiative by announcing a price freeze in essential items within its control as stated above particularly quit rent, assessment rates, electricity tariffs and water rates as well as fuel. Such a price freeze would at least help Malaysian businessmen and wage-earners reduce their financial burden in this difficult times and agree with Tan Sri Nor that inflation is not a concern. MCA, MIC and Gerakan must express their stand on the economic question and issues facing the country.


* Lim Guan Eng,  DAP Secretary General

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